We often hear and see advertisements for rent to own related to stocking your apartment or house with TVs, couches, clothes washing machines, and other consumer goods. While the TV commercials for these retailers and the products may look great, you should be very careful, read the fine print, shop around before renting to own, and think through the terms of the offer provided by the vendor.
Many times, these vendors advertise that “Bad credit, no credit, or no downpayment is no problem!” If you are unfortunately in the category where you have bad credit or no cash downpayment, you should first try to hold off on purchases of non-essential items. This will give you time to work on improving your credit and save some money to make a smarter purchases in the future without having to resort to renting to own. In fact, renting to own should be a last resort in a majority of cases because when you see advertisements touting that you can purchase with bad or no credit, many times that vendor is offering you products at above market costs and above market financing interest rates, so beware!
Rent to own contracts are purchasing plans that you might choose to utilize for buying something like a new computer or kitchen table. There are two things you should consider when you decide to pursue the rent to own option from a retailer:
- What price am I paying for this product and how does that compare to the price at another vendor?
- What is the actual financing rate that I am going to pay to purchase this product and how does that compare to other financing options?
What price are you paying for this product and how does that compare to the price at another vendor?
In buying any item of substantial value, you should shop around to first find the best price. To do that, you first must figure out what exactly you want to purchase! There is no reason you shouldn’t do this since the Internet makes researching and comparison shopping so easy. Let’s say you decide you want a 42-inch LCD Hi-Definition TV — you can find prices for suitable versions of that at Best Buy, Costco, Walmart, Target, Buy.com, Amazon.com, and many other vendors.
Therefore, first figure out what you want, or better, what you need, and do your research to determine what you should be paying for that product. If you are the type of person who goes to the store and allows salespeople to talk you into making much larger purchases than you had planned, it might be better to avoid that scenario and stick with an Internet purchase.
Now that you know the product and price, if you are going to do a rent to own contract, you know about what you should be paying for that item. Many rent to own stores and salespeople will steer you to the low monthly payment, worry-free purchase, and return guarantee instead of providing you with the price you will actually be paying for the product. In addition, this price is usually noted in the purchase contract as many states require this disclosure, but by the time you see that, it is usually beyond the point in the sales process at which you would realistically stop the purchase and say no thanks. So ask for the price upfront and if you cannot get the answer, head for the door. Don’t worry, the salespeople will usually do their best to try to get you to stay, which usually means that they'll finally disclose the price!
If the price seems fair and in line with the research you have done, then you can move to the second question you should be considering.
What is the actual financing rate that I am going to pay to purchase this product and how does that compare to other financing options?
Financing options can run from credit cards, to store credit plans, to rent to own. Any of these options may be okay, as long as you are responsible in your use of credit. That is the hard part, though, as most people start off being responsible, but then end up carrying credit card debt or revolving credit balances. Because of this, the best option is still always saving enough money and then paying in cash for your purchases.
If you have to finance purchases, here are the typical options:
- Store credit plan – Normal store credit plans might be a fair deal as they sometimes advertise 0.0% interest, or low interest rates, as long as the purchase is paid in full at the due date. This can be a fair deal, as long as you are 100% sure that you will have it paid off in full by the deadline. If it is not paid off, store credit plans usually add all of the cumulative interest charges for the entire financing period to your balance – you do not want that!
- Credit cards – Credit cards like your Visa or Mastercard are another option. Depending on your interest rate and how quickly you can pay off the bill, this might be a decent option. It is good to have a plan in place on how you will pay off this balance before you make the purchase.
- Rent to own – Rent to own can also be a viable option if you need the product, you’ve done your research and determined that the price is fair, and you have few other financing options. Just make sure you need the product as opposed to simply wanting it. Have the salesperson give you an exact disclosure on the financing rate you will pay if you pay it off on schedule. If it is very high (which many times it is), ask yourself if you really need the product.
Those items above, which caution you to do your research to confirm whether or not rent to own makes financial sense for you, are especially important if your end goal is to own the product outright. But in nearly all cases, there are better, more affordable options for you if you're striving to eventually own the product.
Conversely, if you are just planning to rent your TV, couches, etc., and not eventually own them because you only need the items for a short period of time, rent to own might make sense and be your best option. This is because you typically can terminate the rental agreement at any time and return the goods with no further payment obligations – read your contract carefully. Overall though, think through your situation and consider what the best course of action may be for you. Keep in mind that when you're making any large purchase decision where you cannot pay cash, shop for the best deal first, then work on the financing aspect of the purchase. Just make sure that you get the best deal that will fit your needs and circumstances.